Mihir Vora, CIO, Trust Mutual Fund, says “there have been times where I have been ruthless in selling when the markets turned. Probably I did not catch the top. But even 10% below or 15% below, I do not mind selling. Once I believe that the trend has turned. So, that discipline I always had because I always believe there is no point looking back. So, just because a stock was 15-20% higher 5 days ago, does not mean you cannot sell it now.”
Other than the new role and a new leadership position that you have taken up, what else is new?
It is a new beginning for me. I am starting a new venture or job whatever you call it and it is very exciting looking forward to the next many years in this. Second, we do not realise but from the stock market point of view, we are in the middle of a dream run.
Why do you say that?
If you look at the history of the Sensex over the last 40 plus years, since 1979, the maximum number of consecutive years in which the Sensex has gone up is seven. The winning streak for seven consecutive years has not been broken yet. In 2023, we are in the eighth year of the Sensex going positive. The eighth consecutive year of positive closing for the Sensex, which is a new record. So, it is a dream run.
What are the positives and negatives of the current scenario that we are taking in the new Samvat?
The positives are mostly domestic. We did not overstimulate in the post Covid scenario. In 2020-21, unlike in the west. where they used all sorts of monetary and fiscal bazookas, we were more prudent and directed our efforts towards the weakest sections and created this medical infrastructure to handle the crisis rather than just writing blank cheques to the entire population which they did in the US.
So, in the initial couple of years – 2021-22 – those economies did extremely well because there was free money being distributed to the people and consumption and recovery was much sharper. We did not go overboard. We did a more prudent thing which is focussed efforts and the aftermath of that is that we do not have any excesses in the system. So, we are now building up to a normal cyclical recovery from the base of the Covid and we have enough ammunition left to spend in case there are any unforeseen circumstances.
India as a whole is starting on a much sounder footing. So, the domestics are positive. Globally, it is a hangover because now they cannot stimulate anymore; inflation because of spending has run very high and they are in a tightening cycle. Also, inflation is at levels which they are not used to. The local economy is much stronger than the global economy and it is our premise for investments.
What about the headwinds coming from the geopolitical tensions and also the FII selling? Are we on a stronger ground as far as DIIs are concerned?
Certainly. Two things: One, we can talk about the flows which is the mutual fund flows, insurance, NPS and EPF money coming into the system which is now forming a very good solid monthly base for the equity markets and second is India’s situation versus the rest of the world on a relative basis has never been better.
In the 2000s, we used to talk about BRICS — Brazil, Russia, India, China. Now, two of the BRICS are gone. Now it is only Brazil and India which are left. China is uninvestable, Russia has its own share of problems in the global scene. Nobody wants to put money there. So, it is only Brazil and India which are large economies and growing very well. So, the scarcity value of India is increasing and that makes us relatively much stronger.
So, while we are seeing FII outflows over the last many months, that is because of the sharp rate increases seen in the US especially but that is only temporary because relatively speaking, for the next three to five years India will continue to grow faster than the west for sure and probably even faster than China.
I also want to understand a global perspective because you talk to a lot of foreign investors, you travel so much, what is the kind of sense and the mindset towards India which could be a differentiating factor or may be an aggressive and a bullish factor for India that you can sense?
First and foremost, India is a credible and open democracy. There is rule of law, there is transparency and we have been reasonably open on the current account and the capital account. People’s comfort with India has always been there. It is just that…
Even compared to China?
In terms of investable quality companies all the time but it just so happens that China had grown at 9-10% for almost 15 years. So, the GDP growth that China was showing was amazing, much better than India for sure, that is why people’s attention always used to be towards China. But now after 20 years, we realise that while the Chinese GDP has grown by four times, the stock market is still at those levels. There is no value creation happening in the stock market. You can fool some of the people some of the time but you cannot fool all the people all the time and that is what people are realising.
So, let us just go back a year back, last Diwali and this Diwali, do you think what is the ratio between traders and investors? Do you think more investors are coming in?
I think both are coming in. If you look at the F&O volumes, they are going up exponentially. The number of Demat accounts opened, the number of stock broking accounts opened every month, they are continuously increasing. So, obviously a lot of traders are coming into the market and technology is only aiding it further. Earlier you used to have phones, then you have desktops, but now with mobiles anybody with a phone is a trader now and you do not even need too much of margin money, etc, plus the Jan Dhan Aadhar mobile combination has made it so easy to open an account. You do not need anything except for your mobile to open an account. It is all paperless. A new set of traders and investors are coming into the market but on the other hand the long-term investors are also coming in, which we can see in the SIP numbers, the insurance flows.
From insurance to AMC, what is on your radar and since you have taken the responsibility now from a fund house perspective, from an industry’s perspective, what is an agenda, like top five things to work on?
I would say insurance versus AMC, for me the roles are similar because it was always about managing money. The product structures are different but ultimately the same stocks, same bonds, same real estate, etc, so it is same but packaged differently I would say. You still have to take the same fundamental calls, (3:20) calls and all those analysis, etc. But in terms of the mutual fund industry, there are 40 plus AMCs now out there but there is always a scope for differentiation and I think what I bring to the table, what we as Trust bring to the table is very differentiated inside into the world of investing because of our combined wisdom. The team that we are building is kind of top class and we do believe that the kind of experience that we have will help us stand out in terms of our investment process and strategy.
Every AMC comes up with their own factor of themes, their own fundamentals and their values. So, what Trust has to offer, what kind of fund management team do you have, what are the kind of sectors and themes that you are following in the market now?
We are not going to launch thematic funds. First fund will probably be a diversified fund or a flexicap kind of a mandate where we can choose from all the market cap buckets so to say and we have people, we are building people, a team of people which are from the industry, both from the buy side as well as the sell side. We have people from the mutual fund industry, we have people from the investment banking and broking industry but very experienced and very sharp people and, of course, with my experience of building teams over so many years, I think we have a winning combination.
Diwali is also the beginning of a new Samvat. What are the sectors you think can be a shubh kharidari or buy for this new year?
First and foremost, the financials make a lot of sense because as we discussed, we are talking about the domestic economy doing better and in the last five years what we have seen is that most of the growth in credit by banks or NBFCs has been on the retail side whether it is mortgages or credit cards or personal loans or two-wheeler loans, four-wheeler loans it is all been retail led.
Corporate India after the shock of the late 2000s and the over investment and the NPA issues, had become conservative. So, we have a situation where while households have been growing in terms of retail credit, they are still not over leveraged. In fact, they have been cutting debt and we have MSMEs which need money. We have not really seen the corporate cycle pick up. In the meantime, again because of the shocks and the NBFC crisis that we saw in 2018-19, most of the banks and NBFCs have cleaned up their balance sheets, increased capital, tightened lending norms and now are ready to grow.
If corporate credit picks up, which I do believe it will, then we have a situation in which retail is anyway growing, MSME is also growing and the large corporate sector will also grow which means that we are in for a good credit growth cycle for the next many years. Banks and NBFCs are starting with a clean slate and they have the capacity to grow. The fight will be for the liabilities. So, financials – both banks and NBFCs – to start with do make sense.
One question that we are always asked is should we enter equity through stock shares or should we just enter via mutual funds? How can one decide that?
That is a function of your skill set, your mindset…
What kind of skill set and what kind of mindset?
So, your skill set, your mindset and your time. If you are building a portfolio of stocks on your own, you are not going to do it blindly. You will have to do research, you will have to look through the numbers, you will have to look through the transcripts or the conference calls. Good thing is that these days lots of information is available out there. So, you have company presentations, you have conference call transcripts, you have the analyst reports also available widely. So, data is not a problem. Question is do you have the time?
And do you know what suits you and what does not?
Exactly. So, I think if you have the time, well and good, you should do it as a hobby. But if you do not have the time, then leave it to the professionals.
Let us also talk about the festival of elections that we are into now and…
Starting with the state elections.
Exactly. So, we have to consider a lot of factors. First, what is the market’s choice? What are the market’s expectations? We are seeing a lot of freebies happening which we see during the election season. The impact on food subsidy. How do you analyse all of this and the liquidity that we will be seeing flowing around?
If you step back and look at the backdrop of the coming elections in 2024, stock markets are doing well. Economy domestically is doing okay. I would say not too bad, especially compared to the rest of the world. So, economically there is no major negative. But if you break it down a little more, the recovery post Covid has been more on the higher end. It has been a kind of a K-shaped recovery where the premium segments of consumption, the premium income level categories have done better in the recovery than the lower income segments, both urban lower income as well as the rural lower income and the rural poor.
This K-shape is not sustainable. Of course, the hope is always that the higher segments grow so much that it pulls the lower segments along with it but if that does not happen, then you need support in the meantime. So, given the fact that we are in for elections next year and the recovery on the rural side is still tentative, we can see some more support. We can call it populism or whatever, but there will be support for the masses because it is required and given the way tax collections, etc, are, we probably can afford it also.
What is your view on the overall earning season and the expected demand during the festive season? Will there be something extraordinary or anything that will be worth highlighting?
First let us talk about the earnings season so far. It has been, broadly speaking, at the index level I think it is as per expectations. You will not see major upgrades or major downgrades to overall earnings. But the trends have been again as expected. IT has been okay. But the guidance has been weaker than expected. Due to mass consumption issues, FMCG results broadly have not been that great. Banking and finance have done very well.
Other segments like automobile, discretionary have done well. So it has been a mixed bag. Infra segment continues to do well. There is a lot of traction out there. Capex is happening both on the government side as well as the private sector side. So in investments, real estate and some bits of consumption on the higher end are doing well. The lower-end consumption and the globally linked sectors like IT are not doing so well, including commodities, metals etc. That has been in terms of earnings breakdown. If you look at the expectations, I do not see any major negative or positive happening this Diwali.
If you look at the current broad trends, there is decent demand but it is not like accelerating. So I do not see a major positive surprise as far as consumption is concerned. Hope is that the lower segment should pick up in the second half post the harvest etc. If that happens then we should get the extra kicker on the economy.
What is there on your shopping list for this Diwali?
We are always fully committed to equities whether it is through mutual funds or direct stocks or ESOPs. We are always exposed to equities. But broadly speaking, I would continue to look at stocks across the spectrum. So a flexicap approach is better because largecaps offer valuation comfort. If you look at the index level, the Nifty is still at a reasonable valuation. It is not overshot. Midcaps and smallcaps have some froth in valuations. There is hardly any correction at the index level. But all the exciting and the high growth sectors are in the midcap space. So, one has to be a little more discerning than before.
You cannot go more heavy on these.
You would not go overboard but I would not say there is no stock picks available. I think you will have to put in a little more effort than before. It is not going to be as easy as last year.
Large caps really very attractive now?
I think so, because we are expecting about 15% earnings growth. Largecaps are trading at a historical PE of around 20 plus, which is not too bad. It is about the long term average. So, with the long term average valuations, improving ROEs and 15% earnings growth, it is not a bad risk return trade off.
On a portfolio level, is it the time to rebalance and reshuffle your portfolio? Would you recommend that to the investors?
It depends on your starting point. If you are like 100% into smallcaps, probably you want to diversify. Otherwise, it is fine.
What is the frenzy about microcaps?
It is the same thing. As I said, we have had a dream run. This is the eighth year of positive returns from the large cap indices. So, as the run matures, people will be going down the risk curve. So, first the largecaps outperformed, then the midcaps outperformed. First the largecaps became expensive. So, last year we were actually advising people to be a little cautious on largecaps, which worked out. So, Nifty has not done too much in the last 18 months. If you look at the peak of 2022, in the first quarter of 2022, after that Nifty is still positive, but the midcaps and smallcaps have caught up. So, people will increase their risk appetite as the market sustains, which is dangerous because then you see a lot of people coming at the top but that is the nature of the market. So, the micro cap frenzy is because of that. It is because of this long bull run that we have seen. People are going down the risk curve.
How smart you should be because a lot of people have this FOMO thing. The AMCs have been launching specific microcap products to lure in the investors and get on the train.
But a lot of fund managers are also cautioning against it.
That was my point. What would you like to tell our investors?
India has a wide variety of stocks to choose from. And as I said, yes, there are pockets of froth but that does not mean everything is expensive. When you have 3,000 stocks in the midcap and smallcap space, you should not paint everything with the same brush.
The universe is large.
Probably three years back, it was very easy to pick stocks because lots of stocks were available at good valuations. Now, much fewer stocks are available at attractive valuations, but that does not mean zero stocks are available.
What was your first introduction to investment and the day when you realized that savings is different and investment is different?
My first introduction to investment was through my uncle because I come from a very humble background. We never had surpluses to invest. But my uncle used to have some money and he used to invest. So, at that time, in the 80s and 90s, there used to be a lot of IPO frenzy. So, my uncle used to apply through the IPO. And I used to fill up the application form for him because he used to apply in multiple names, multiple applications and all those things. I used to sit down and fill out the application forms. And then I used to track the stocks, how they are doing after the IPO. And then realised that one can make money out of it.
So, this was like a perfect learning for you.
Yes, physically filling forms.
So, first investment was?
I do not really remember. Probably it was my own mutual fund. In my first job, we launched a first balanced fund. For that I was the fund manager. I think my first investment would have been that.
What mistakes in investments you think you might have done which you might want to share with our viewers?
Mistakes typically have been FOMO. When you are younger, you tend to have a lot more FOMO. But it has been a long career, so I think now the FOMO is much less. So, going with the herd, playing momentum all the time, that is something that was there in the early parts of the career, which actually worked very well. But when the crash happens, you get some sleepless nights and then you start realizing whether it is all worth it.
How do you deal with that fear? I mean, initially, how did you do that? Now, obviously, you know what goes into all of this. But initially, when you were just learning about all these things, how did you tackle it?
By making mistakes, frankly, by making mistakes, but one characteristic I always had is that I could stand my ground. So, when I strongly believed in something, I would act on it. So, there have been times where I have been ruthless in selling when the markets turned. Probably I did not catch the top. But even 10% below or 15% below, I do not mind selling. Once I believe that the trend has turned. So, that discipline I always had because I always believe there is no point looking back. So, just because a stock was 15-20% higher 5 days ago, does not mean you cannot sell it now.
So, who has been your market guru, your uncle?
No, that was just my starting point. But frankly, when we started in the mid-90s, there were not enough books available, frankly speaking. So, whatever we learnt is from our own experiences. And at that time, most of us were freshers and our mentors were also kind of maybe 4 years experience, not like 30 years experience. So, we used to learn from each other. That was also the first wave of foreign brokerage houses coming in. So, we started getting research reports from foreign houses in the mid-90s. So, we learnt a lot from those kinds of things also. But I think ultimately it is reading books and basically self-experience that has helped us. And I think the self-experience is irreplaceable. And I am really grateful to the companies which put faith in such young fund managers and gave us money to manage in the early stage of our careers. You probably cannot get it that easily now. You probably have to be an analyst for a few years before you start managing money.
What is your life bucket list like, the items that have been ticked off and the items which are pending?
The never-ending item is travel. I just love to visit places.
So, how many countries so far? You lost the count.
Well, I have not been to the Australian subcontinent and the South American continent. Otherwise, most of the continents, lots of things, but there are infinite things to do and infinite places to visit. So, whatever free time I get, I travel with my family and visit new places every vacation. So, that is a never-ending bucket list, I would say. Otherwise, basic fitness and have a good night’s sleep is, I think, the blessing that one can only ask for.
How would you like to wish investors and what would you like to wish them for?
First of all, again wishing all of you a very happy and prosperous Diwali and a new Samvat. In investments, there are two popular stages, which are buy and sell. But there is a third stage in the middle, which is ‘hold’. Buying is easy. Selling is also possible. It is not that complicated. It is the hold part, which actually creates the maximum wealth but which is the most difficult to implement because there you have to do nothing.
My request to investors is, whatever you do, do it for the long term and let your wealth multiply by holding it because you can only hold if you have faith and conviction in the long term of any market or stock that you own. So, if you are in the mutual fund basket then you have to have faith in the India story for the long term. Sure. If you are picking stocks individually, then you have to have faith in that company that you are invested in. But ultimately long term wealth and long term compounding can only happen in the hold phase. So, be patient and be aware of what you are doing.